Schools, water become priorities as Saudi launches privatization plan

DUBAI (Reuters) – School buildings and desalination facilities producing fresh water will feature in some of the first deals as Saudi Arabia transfers a quarter of its economy to private hands, an official overseeing the process said on Wednesday.

Turki A. Al Hokail, chief executive of the National Centre for Privatisation and Public-Private Partnerships, was speaking as the government formally launched a vast privatisation programme focusing on 10 sectors of the economy.

Riyadh is working on new rules to attract foreign as well as local capital to the scheme and will address potential investors’ concern about their level of control over projects, including their ability to hire and fire workers, Hokail said.

“This is a big change in the economy. The government is moving from operating projects to monitoring and regulating them,” he said in a telephone interview. “Operations will be the job of the private sector.”

Riyadh announced on Tuesday that it aimed to generate 35 billion to 40 billion riyals ($9 billion to $11 billion) of non-oil state revenues from the privatisation programme by 2020, part of a drive to cut Saudi Arabia’s reliance on oil exports.

Some of the money is to come from asset sales in sectors such as education, water, telecommunications and health care. Some of those sales could occur through initial public offers of shares, while others might be direct transfers.

Hokail said Riyadh was willing in principle to consider sales of 100 percent stakes in state firms, but decisions on each deal would depend on investor demand and market conditions.

The rest of the money would come from public-private partnerships (PPPs) – deals in which private companies invest in infrastructure and are paid to operate it for a period, before eventually transferring it to the state.

Draft Law

Eventually, the privatization program aims to boost the private sector’s contribution to Saudi gross domestic product to 65 percent from 40 percent, easing pressure on government finances that have been strained by low oil prices.

“It seeks to eliminate all obstacles that may limit the private sector from playing a larger role in the development of the kingdom’s economy,” Hokail said, adding that Riyadh was also revising rules on state procurement, markets and other areas.

Authorities hope to offer a draft law on PPP frameworks for public consultation and feedback within a week or so, before implementing a final version later this year, Hokail said.

The lack of such a law, and other legal uncertainties over ownership of state assets, have prevented significant progress in the privatization program since authorities began talking about it two years ago.

The relatively modest financial targets for the initial years of the scheme suggest authorities may have scaled back their expectations because of legal and other difficulties.

Initially, officials talked of raising $200 billion over an unspecified period. Both the old and the new revenue targets are separate from Riyadh’s intention to raise about $100 billion from the sale of a stake in national oil giant Saudi Aramco, which is to take place this year or next.

Hokail said authorities aimed by 2020 to completed five asset sales, 14 PPPs and four corporatization exercises, in which state projects would be converted into independent firms in preparation for their possible sale at a later date.

Among plans in the pipeline are the sale of the Ras Al Khair desalination and power plant, as well as flour mills and football teams; a PPP for private companies to build and operate facilities for 60 schools; and the corporatization of ports.

Hokail said authorities would be choosy about the identity of buyers of state assets, vetting them on issues such as their intention to add value to the economy, boost employment and develop local talent among staff.